Money Laundering

By -
Chintan Gutka
Himanshu Kapadia
Harshael Sawant
Olivia D’Mello
Ritesh Sapre
Ashwin Sharma
 Definition
 Process
 Statistics
 Risks
 Ml case in India(HAWALA)
 How to avoid it/corrective measures
 Laws for the same
 Definition
Money laundering is the practice of engaging in a series
of financial transactions to conceal the ownership,
source, control or destination of illegally gained money.
Ultimately, it is the process by which the proceeds of
crime are made to appear to have a legitimate origin.

In Simple terms..

Money laundering, at its simplest, is the act of

making money that comes from Source A look like it
comes from Source B.
PLACEMENT
•First stage in the washing cycle.
•The money is placed into the financial system or retail economy or are smuggled out of the
country.
•The aims of the launderer are to remove the cash from the location of acquisition so as to avoid
detection from the authorities and to then transform it into other asset forms
•Example: travellers cheques, postal orders, etc.

LAYERING
•An attempt at concealment or disguise of the source of the ownership of the funds by
creating complex layers of financial transactions designed to disguise the audit trail and
provide anonymity.
•The purpose of layering is to disassociate the illegal monies from the source of the crime
by purposely creating a complex web of financial transactions aimed at concealing any
audit trail as well as the source and ownership of funds.

INTEGRATION
•The final stage in the process. It is this stage at which the money is integrated into the
legitimate economic and financial system and is assimilated with all other assets in the
system.
•Integration of the "cleaned" money into the economy is accomplished by the launderer
making it appear to have been legally earned. By this stage, it is exceedingly difficult to
distinguish legal and illegal wealth.
 The Techniques

Placement Layering Integration

• Smurfing • Tax Havens & • Use of haven
Offshore Banks bank credit cards
• Shipping Money
• Receiving as
Abroad • Bank Secrecy
consulting or
• Placement Law as a layering directors fee
tool
through Banks • Arrangement of
• Use of “Pass
• Corporations & corporate loans
Through” or Shell Companies • Proceeds of
“Payable as a layering tool gambling
Through” • Use of trusts • Real estate
Accounts transactions
• Use of walking
• Electronic Wire • Stock Purchase
accounts
Transfers • Use of business
• Establishing self
• Insurance • International
owned bank
importing and
Products • Use of exporting
• Investment intermediaries • Use of free trade
Related zones
Methods popular to money launderers at this stage of the game
 The establishment of anonymous companies in countries where the right to
secrecy is guaranteed. They are then able to grant themselves loans out of
the laundered money in the course of a future legal transaction.
Furthermore, to increase their profits, they will also claim tax relief on the
loan repayments and charge themselves interest on the loan.

 The sending of false export-import invoices overvaluing goods allows the

launderer to move money from one company and country to another with
the invoices serving to verify the origin of the monies placed with financial
institutions.

 A simpler method is to transfer the money (via EFT) to a legitimate bank

from a bank owned by the launderers, as ‘off the shelf banks’ are easily
purchased in many tax havens.
Where does money laundering occur?
 Countries or sectors in which there is a low risk of detection due to weak or
ineffective anti-money laundering programmes
 Concentrated geographically according to the stage the laundered funds have
reached.
 At the placement stage, for example, the funds are usually processed relatively close
to the under-lying activity
 At he layering phase, the launderer might choose an offshore financial centre, a
large regional business centre, or a world banking centre – any location that
provides an adequate financial or business infrastructure.
 At the integration phase, launderers might choose to invest laundered funds in still
other locations if they were generated in unstable economies or locations offering
limited investment opportunities.
Influencing Factors
 Acceptance of flight capital by western countries
 Laws and limitations of other countries
 Tax heavens as sanctuaries
 Offshore corporations
 Bankings’ role in facilitation of the activity
 Bank Secrecy
 Volume and complexity of international
 Transfers of funds
 Internet based banking
 Shortfall of reporting requirements
 Criminals influencing Government and
 Bank support
 The widespread use and acceptance of
 Trade mis-pricing
Some Figures..
 In 1996 the International Monetary Firm estimated that 2-5% of the worldwide global economy
involved laundered money
 The United States apparently is one of the havens for organized money laundering, and around
17% of their GDP is made from this illegal practice.
 Contribution by different continents in money laundering for the year 2008.
Laws
The Prevention of Money-Laundering Act, 2002 came into effect on 1 July
2005.
 Section 3 - Covers those entities who directly or indirectly attempt to indulge in
any process or activity connected with the proceeds of crime and projecting it as
untainted property, such person or entity shall be guilty of offense of money-
laundering
 Section 4 - Prescribes punishment for money-laundering with rigorous
imprisonment for a term which shall not be less than three years but which may
extend to seven years and shall also be liable to fine which may extend to five lakh
rupees and for the offences mentioned [elsewhere] the punishment shall be up to ten
years.
Contd..
 Section 12 (1) - Prescribes the obligations on banks, financial institutions and
intermediaries
(a) to maintain records detailing the nature and value of transactions which may be
prescribed, whether such transactions comprise of a single transaction or a series of
transactions integrally connected to each other, and where such series of transactions
take place within a month
(b) to furnish information of transactions referred to in clause (a) to the Director
within such time as may be prescribed and t records of the identity of all its clients.

 Section 12 (2) - Prescribes that the records referred to in sub-section (1) as

mentioned above, must be maintained for ten years after the transactions finished.
Fighting money laundering help fight crime
 n law enforcement investigations into organised criminal activity, it is often the
connections made through financial transaction records that allow hidden assets to
be located and that establish the identity of the criminals and the criminal
organisation responsible.
 When criminal funds are derived from robbery, extortion, embezzlement or fraud, a
money laundering investigation is frequently the only way to locate the stolen funds
and restore them to the victims.
 Most importantly, however, targeting the money laundering aspect of criminal
activity and depriving the criminal of his ill-gotten gains means hitting him where
he is vulnerable. Without a usable profit, the criminal activity will not continue.
Steps to avoid money laundering
 Customer due diligence and record-keeping
 Reporting of suspicious transactions and compliance
 Financial institutions should also guard against establishing relations with
respondent foreign financial institutions that permit their accounts to be
used by shell banks.
 Special attention to transactions with persons/companies and financial
institutions, from countries which do not or insufficiently apply the FATF
Recommendations.
 Regulation and supervision
 Competent authorities, their powers and resources
 Mutual legal assistance and extradition
 Other forms of co-operation
The Hasan Ali case..
 Khan had started an account with a deposit of $1.5 million with UBS Singapore in 1982.
 A payment of $240 million allegedly from Adnan Khashoggi’s Chase Manhattan Bank account in
New York was approved by Weilly and accepted by Reto Hartman at UBS Singapore
 After the $240 million transaction, the account moved from UBS Singapore to UBS Zurich in
1986
 By December 1997, the deposit amount reached $560 million.
 By 1999, the same account mysteriously increased to $969 million (~ US$ 1 billion). Most of this
money is lying as liquid cash and bonds
 By 2001, a refund of $300 million was deposited as ‘funds from weapon sales’ into the account. A
little later, the account became non-operational.

 As on August 31, 2006, the balance in the account was US$6.6 billion

 Balance as on November 2, 2006: $7.7 billion

 Balance as on December 8, 2006: $8.04 billion